PennyMac Financial Services, Inc. (NYSE:PFSI) Q3 2023 Earnings Conference Call October 26, 2023 5:00 PM ET

Company Participants

David Spector - Chairman & Chief Executive Officer

Dan Perotti - Chief Financial Officer

Conference Call Participants

Kevin Barker - Piper Sandler

Bose George - KBW

Michael Kaye - Wells Fargo

Eric Hagen - BTIG

Kyle Joseph - Jefferies

Jay McCanless - Wedbush Securities

Priya Rangarajan - RBC Capital Markets

Kevin Barker - Piper Sandler

Operator

Good afternoon, and welcome to PennyMac Financial Services, Inc.'s Third Quarter 2023 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call are available on PennyMac Financial's website at pfsi.pennymac.com.

Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide two of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings material.

I would like to remind everyone, we will only take questions related to PennyMac Financial Services, Inc. or PFSI. We also ask that you please keep your questions limited to one preliminary question and one follow-up question as we'd like to ensure that we can answer as many questions as possible.

Now I'd like to introduce David Spector, PennyMac Financial's Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Financial's Chief Financial Officer.

David Spector

Thank you, operator. PennyMac Financial produced outstanding results in the third quarter, returning to a double-digit annualized return on equity. While average mortgage rates were up 50 basis points from the prior quarter, we demonstrated the earnings power of our balanced business model with exceptionally strong operating income from our large and growing servicing business, combined with continued profitability and production. As a result, book value per share grew 3% from the prior quarter.

As you can see on Slide four of the presentation, mortgage rates have continued to increase from record lows in recent years and are now near 8%. As a result, many borrowers who locked in a low fixed rate mortgage have been incentivized to stay in their homes given their low mortgage payments. This has resulted in an extremely low inventory of homes for sale, driving expectations for the lowest unit origination volume since 1990.

Additionally, we believe quarterly run rate origination volumes are trending lower than the average $1.6 trillion estimates from third parties for this year. Though the current origination market remains constrained, mortgage banking companies with large servicing portfolios are better positioned to offset the decline in profitability has resulted from these lower origination volumes.